Surge in raw material prices

MANUFACTURERS' raw material costs surged by the biggest amount in nearly two years last month, with the blame laid squarely on rising oil prices. Input prices rose by a massive 2.6% in March, the largest one-month increase since May 2000, official figures showed.

National Statistics, which compiled the data, said the rise was mainly due to a 15.8% increase in the cost of crude oil.

The news came as Brent crude futures leapt by 59 cents to $23.75 a barrel in the wake of Venezuelan President Hugo Chavez's return to power at the weekend. His move back to the presidential palace two days after being forced from power by a military coup calmed the market's nerves over a possible break in policy on crude output quota compliance by the Opec producer.

Stiff competition meant manufacturers were unable to pass on the higher costs through factory gate prices in March. Output prices edged up by only 0.1% in March and were 0.3% lower than a year ago.

Jonathan Loynes at Capital Economics said: 'March's numbers add support to the idea that the greatest threat from the rise in oil prices is a further squeeze on producers' margins at a crucial stage of the budding industrial recovery rather than an upsurge of inflation in the High Street.'

Today's rally in oil prices came as it emerged that Chancellor Gordon Brown will announce a freeze on petrol duty for another year in his Budget on Wednesday.